Washington Insider--Tuesday

Ethanol Policy Impacts

Here's a quick monitor of Washington farm and trade policy issues from DTN's well-placed observer.

US Clearance for ChemChina Deal Sends Syngenta Stock Soaring

A U.S. national security panel cleared ChemChina's $43 billion takeover of Swiss pesticides and seeds group Syngenta, the companies said, boosting chances that the largest foreign acquisition ever by a Chinese company will go through.

Syngenta did not disclose whether it had made concessions to secure approval but indicated that any such steps would not have a significant impact on its business.

"China National Chemical Corporation (ChemChina) and Syngenta today announced that the companies have received clearance on their proposed transaction from the Committee on Foreign Investment in the United States (CFIUS)," a joint statement released by Syngenta said. "We are not disclosing the details of the agreement with CFIUS to respect the confidentiality of the process," a Syngenta spokesman said. "Any mitigation measures are not material to Syngenta's business."

Syngenta reiterated that it expected the deal to be finalized by the end of the year. It said closing the transaction was subject to "antitrust review by numerous regulators around the world and other customary closing conditions. Both companies are working closely with the regulatory agencies involved and discussions remain constructive."

Supreme Court Review Sought in Wetlands Decision

Lawyers for South Dakota farm owners have petitioned the U.S. Supreme court to review an appeals court decision that upheld the federal government's determination that a portion of the farm could support wetlands.

The petition, filed Aug. 8, says a ruling by the U.S. Court of Appeals for the Eighth Circuit is flawed and could nullify federal farm payments. It cites a split between the Eighth and Sixth Circuit decisions on the issue, and a conflicting ruling by the Fifth Circuit as requiring Supreme Court intervention.

The Eighth Circuit decision gave deference to a USDA determination based on its field manual that the farm can support wetlands. In their petition for review, landowners Arlen and Cindy Foster wrote that the court should grant the petition to resolve the circuit split on the deference issue and rule on whether use of a remote comparison site for determining the Foster's land supports wetlands violates their due process rights.

The Foster's farm in Miner County, S.D., is located within an area known as the Prairie Pothole Region and is within a major land resource area called the Southern Black Glaciated Plains.

In 2002, Arlen Foster asked USDA's Natural Resource Conservation Service (NRCS) for a wetlands determination for a tract of land, which included a 0.8-acre prairie pothole. The agency used a comparison site around 40 miles away, but within the same major land resource area, to determine that the farm's soil could support wetlands vegetation and certified the site as a wetland in June 2011. The service's National Appeals Division (NAD) upheld the decision.

Under the "Swampbuster" provisions of the Food Security Act of 1985, a person who has converted wetlands to farmland may be ineligible for federal farm program payments, making the determination particularly significant.

A federal district court granted NRCS's motion for summary judgment and the Eighth Circuit affirmed that ruling, rejecting the Fosters' claim that the agency improperly used a comparison site too far away from their farm to make its determination, instead of two sites on their property.

Also, the Fosters asked whether "the use of a remote comparison site, preselected ten years prior and without notice to the Fosters or an opportunity to be heard, as the sole means of determining that their land supports wetland plants, violates their rights to due process of law under the Fifth Amendment." The agency's response is due Sept. 12.

Washington Insider: Ethanol Policy Impacts

As recently as the 1980s, ethanol -- even that made from feed grains like corn -- was widely considered an "environmentally beneficial" fuel compared with gasoline. Then a long list of environmental studies focused on the fuel's "life cycle" and asserted that it did more damage to the environment than it prevented, largely because of the increased cultivation of increasingly vulnerable land.

That debate subsided as production efficiencies were developed, but more recently the debate has resumed. Now the Environmental Protection Agency is being accused of not properly analyzing these effects by its Inspector General (OIG), The Hill reported last week.

The 2005 law creating the renewable fuel standard requires the EPA to analyze and report environmental impacts of the mandate to blend ethanol and other biofuels with gasoline, and to determine whether measures are needed to blunt negative effects. The EPA's OIG is citing the agency for lack of compliance with those provisions. It says that "not having required reporting and studies impedes the EPA's ability to identify, consider, mitigate and make policymakers aware of any adverse impacts of renewable fuels."

The Hill notes the OIG report is the latest development in the years-long debate over whether biofuels and the federal requirement to use them are worse for the environment than traditional fossil fuels.

When Congress created the program in 2005 and expanded it in 2007, supporters said using fuels produced from plant matter would be environmentally beneficial, something the corn industry, the Obama administration and ethanol supporters say is true, The Hill says.

Now, the EPA OIG is arguing that officials only completed one of the triannual impact reports in 2011 and never reported at all on whether air quality is "backsliding" due to biofuel mandates.

The EPA responded to the report that it has not completed another report because "the state of science has not changed enough with respect to lifecycle GHG emissions to warrant revisiting its prior GHG determinations." The OIG countered that the EPA should at least have a method for determining whether another report on environmental effects is necessary.

The regulators also promised they would complete another review by 2017, but an air quality report and recommendations couldn't be completed until 2024 at the earliest. "EPA is committed to successfully implementing the [renewable fuel standard] program and we take our statutory obligations seriously," said EPA spokeswoman Melissa Harrison.

The American Council for Capital Formation, a business group that opposes the ethanol mandate, accused the EPA of trying to ignore the "overwhelming evidence of the harmful impacts of corn ethanol on the environment," said George David Banks, the group's executive vice president. It wants the agency to keep its new pledge to the OIG and "actually get back on track and meet its obligations under the law."

The Renewable Fuels Association also thinks EPA should complete the reports that Congress required, but it is confident the findings would be good news, "... that the required studies will show that biofuels like ethanol are significantly reducing greenhouse gas emissions, even above the threshold reduction," Bob Dinneen, the group's president, told The Hill.

The issue is deeply involved in politics and likely will never be settled to the satisfaction of all parties involved. Clearly, ethanol use has impacts on crop supplies and land use and that can affect the environment. How much depends on numerous assumptions and technology trends.

It also is an increasingly complicated issue since ethanol has more critics today than it once did, including ag groups that think the policies increase their costs unfairly.

One interesting thing about the modern debate is that no one seems to be opposing the OIG's proposed review, at least not directly; not the policy's advocates nor its opponents. Perhaps it is time to carefully trace through the economic, social and environmental impacts from beginning to end. Identifying what these are and who they benefit and disadvantage should be spelled out yet again, to the extent that can be done -- a process producers should watch carefully as it proceeds, Washington Insider believes.

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